Why Silver Prices Are Headed Back To $50/Ounce

Michael Lombardi: The pieces of the puzzle are coming together nicely. As I have been expecting, small investors are running towards silver because gold has become too expensive for them. After all, to buy one ounce of gold it costs around $1,700. With the same amount of money,

a small investor can buy upwards of 53 ounces of silver at its current price of $32.00 an ounce.

We have already begun to see demand for silver increase significantly. I call it the “Silver Rush.” It wasn’t too long ago when I reported the U.S. Mint had halted sales of Silver Eagle coins because it ran out of stock. It’s no surprise that the U.S. Mint now reports that American Silver Eagle coin sales in January rose to an all-time monthly high with 7.1 million ounces of silver purchased, compared to 6.1 million ounces purchased in January of 2012.

Investors are running for silver. The Vice President of Blanchard and Company, Inc., a retail coin dealer, said, “Not only do we have clients calling in, they are buying in huge quantities.” He added, “They are buying the entire 500-ounce boxes that are sealed by the U.S. Mint, that’s what people want right now.” (Source: Tang, F., “UPDATE 1-US silver coin sales set record in January after halt,” Reuters, January 29, 2013.)

The U.S. Mint is not the only one experiencing an increased demand for silver. The Royal Canadian Mint (RCM) is rationing the sales of its silver Maple Leaf coins. The Manager of Communications at the RMC said, “Due to very high demand for Silver Maple Leaf coins, the Royal Canadian Mint is carefully managing supply to ensure all our bullion distributors are served and we continue to take orders.” (Source: Cambone, D., “Royal Canadian Mint ‘Managing’ Silver Supply,” Kitco News, January 25, 2013.)

Investors will continue to rush towards silver, because it is affordable for them; while central banks will buy more gold, as they can afford it. The rush to silver and gold is (of course) fueled by excessive money printing by the central banks, the global race to devalue currencies, and increased inflation.

Central banks around the globe are printing non-stop. You don’t have to look as far as Japan, South Korea, or Russia to find countries increasing their money supply; our very own Federal Reserve is spending $85.0 billion a month buying mortgage-backed securities and government bonds. That $85.0 billion is “created” each month.

How high can silver prices go? Silver follows the pattern of gold prices very closely. As gold prices increase, silver prices follow—but much higher percentage-wise Silver prices reached close to $50.00 an ounce in 2011. If the demand continues at its current pace, then $50.00-an-ounce silver is attainable again.